Can’t repeat the past? Of course you can!

Can’t repeat the past? …of course you can! (The Great Gatsby)

The American Dream is a social ideal that stresses egalitarianism and, in particular, the idea that hard work grants everyone the opportunity for success, material prosperity and upward social mobility. The American Dream is a national ethos of the United States. But, is it an attainable dream or is it just a dream?

When the Economic Mobility Project supported by the Pew Charitable Trust, conducted a nationally representative poll in 2009 asking Americans what they understood by “American dream”, some typical answers included: “Being free to say or do what you want”; “Being free to accomplish almost anything you want with hard work” and “Being able to succeed regardless of the economic circumstances in which you were born.”

These set of beliefs are likely the reason why Americans have been willing to tolerate a good deal more inequality of outcomes than citizens of many other rich countries. Those with lower incomes are not strong advocates of redistributive policies because they think that they, or in the least their children, are likely to climb the income ladder.

However, an emerging body of evidence(1) suggests that more inequality of incomes in the present is likely to make family background play a stronger role in determining the adult outcomes of young people. In fact, countries with more inequality at one point in time also experience less earnings mobility across the generations, a relationship that has been called “The Great Gatsby Curve”(2,3)

Judging by the picture, American Dream does not seem particularly rosy. American society is much “stickier” than most Americans assume. Income inequality is growing to levels not seen since the Gilded Age, around the 1880s, but social mobility is not increasing at anything like the same pace. In 2004, The Economist reported that only 10% of the adult men born in the bottom quarter had made it to the top quarter.

If you wonder whether you can repeat the past, of course you can. And it might not be your worst prospect…

(2) Income inequality is measured as the Gini coefficient, using disposable household income for about 1985 as provided by the OECD. Intergenerational economic mobility is measured as the elasticity between paternal earnings and a son’s adult earnings, using data on a cohort of children born, roughly speaking, during the early to mid 1960s and measuring their adult outcomes in the mid to late 1990s.

(3) Alan Krueger used this label for the first time in a speech, “The Rise and Consequences on Inequality,” to the Center for American Progress on January 12, 2012, in his capacity as the Chairman of the Council of Economic Advisors